Why Two Decades of Practice Haven’t Fixed Financial Reporting

For the purpose of this post, compliance is defined as the successful adherence to regulatory reporting requirements mandated by Section 16 of the Sarbanes-Oxley Act of 2002 (SOX). Specifically, this requires the timely submission of trade filings to the SEC within the two-business-day deadline.

The impact of cumulative experience on accuracy was measured by grouping the data from 9,201,642 transactions into yearly cohorts from 2003 to 2024. The goal was to determine if professionals learn to meet this strict two-day deadline better as they gain more years of institutional tenure. The results show that meeting the two-day requirement does not improve quickly:

  • Year 0 (2003): Immediately after the two-day rule began, the compliance rate was 57.5% .
  • Year 21 (2024): After more than two decades, the rate only reached 58.4%.

The Trend: A linear regression test revealed a Slope ($\beta_1$) of 0.0055. This means the rate of following the rules only increases by about 0.55% each year.

Figure 1: The twenty-year trend showing stagnant growth in reporting proficiency despite decades of market experience.

Is the Change Real? The statistics confirm that while a small change is happening, it is not fast enough to solve the underlying problem:

Statistically Significant: With a p-value ($p < 0.002$), the trend is verified as a real occurrence in the data rather than a random accident.

Predictability:The R-squared value of 0.269 shows that only about 27% of the change in compliance is linked to time and experience.

Despite this learning, the compliance rate still shows annual fluctuations, hitting a peak of 60.4% in Year 11 but dropping as low as 55.9% in Year 13.

The Conclusion: These findings demonstrate that human-driven processes have failed to close the 40% non-compliance gap even after twenty years of practice under the Section 16 mandates. This is evidence of a market failure.